2K Sports 2009 Annual Report Download - page 17

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The market for our titles is characterized by short product life cycles. The inability of our products to achieve
significant market acceptance, delays in product releases or disruptions following the commercial release of our
products may have a material adverse effect on our operating results.
The market for video games is characterized by short product lives and frequent introductions of new
products. New products may not achieve significant market acceptance, generate sufficient sales or be
introduced in a timely manner to permit us to recover development, manufacturing and marketing costs
associated with these products. The life cycle of a title generally involves a relatively high level of sales
during the first few months after introduction followed by a rapid decline in sales. Because revenue
associated with an initial product launch generally constitutes a high percentage of the total revenue
associated with the life of a product, delays in product releases or disruptions following the commercial
release of one or more new products could have a material adverse effect on our operating results and
cause our operating results to be materially different from our expectations.
Our business is subject to the continued popularity of current generation video game platforms and our ability to
develop commercially successful products for these platforms.
We derive most of our revenue from the sale of products for play on video game platforms manufactured
by third parties, such as Sony’s PlayStation 3 and PSP, Microsoft’s Xbox 360 and Nintendo’s Wii and DS.
The success of our business is subject to the continued popularity of these platforms and our ability to
develop commercially successful products for these platforms.
If the average price of our prior generation software titles continues to decline or if we are unable to sustain launch
pricing on current generation titles, our operating results may suffer.
The interactive entertainment software and hardware industry is characterized by the introduction of new
and enhanced generations of products and evolving industry standards. Current generation titles for the
PS3, Xbox 360 and Wii have been offered at premium retail prices since the launch of such consoles. We
expect to continue to price current generation titles at a premium level. However, circumstances may arise
in which we may need to reduce prices for such titles. For example, the current economic downturn has
reduced consumer demand and some of our competitors have temporarily dropped and may continue to
drop the pricing of their games for promotional purposes. In addition, retailers have been increasingly
funding their own promotional pricing programs. Continued promotional pricing could require us to
reduce prices on our current generation titles. If we are unable to sustain launch pricing on these current
generation titles, it will have a material adverse effect on our margins, profitability and operating results.
Consumer demand for software for prior generation platforms has declined as newer and more advanced
hardware platforms achieve market acceptance. Consequently, pricing for prior generation titles across the
industry has declined and we expect it to continue to decline. Furthermore, prior generation titles may be
subject to price reductions earlier in their product life cycles than we experienced in prior years. As a
result, we have reduced prices for our prior generation software titles and we expect to continue to reduce
prices for such software titles, which will have a negative impact on our operating results. These changes
may cause the value of our inventory to decline substantially or to become obsolete.
We depend on our key management and product development personnel.
Our continued success will depend to a significant extent on our senior management team and our
relationship with ZelnickMedia. Our Executive Chairman, Chief Executive Officer and an Executive Vice
President are partners of ZelnickMedia. We are also highly dependent on the expertise, skills and
knowledge of certain of our Rockstar employees responsible for content creation and development of our
Grand Theft Auto titles and titles based on other brands. Although we entered into employment
agreements with members of the creative team of our Rockstar Games publishing label, we may not be
able to continue to retain these personnel at current compensation levels, or at all.
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